The labour unrest at Maruti Suzuki's Manesar plant will have significant financial implications for the company. But the unrest will also have its ripple effect within and outside the automobile industry. Perhaps the biggest is an overhang of fear and anger among the HR fraternity.
"This is the third lynching of an HR executive by angry workers. We are the sacrificial lamb. We are only the messengers — getting badgered from both the sides," says a Mumbai-based HR head of a large automobile company. Soul-searching among HR executives has begun. But the Maruti labour unrest will have other ramifications. ET Magazine analyses five areas where the unrest is likely to have an impact:
Small Gains for Rivals
Despite intense competition, Maruti has so far managed to protect its turf well. The dent in sales will be marginal and temporary
The labour unrest at Maruti's Manesar plant is tragic and automakers across the board and the industry body SIAM have condemned it and expressed solidarity with the company. But competitors will think like competitors.
Almost all car companies competing in the segment — from Hyundai to Ford to Skoda — are gearing up to make the most of the lockout at the Maruti plant.
Maruti's two most popular models — Swift and Dzire — are manufactured only at the Manesar plant. Despite intense competition, these models have a waiting period. While the backlog for Swift is 55,000 units, for Dzire it is 65,000 units — which means a waiting period of close to five months.
The demand rush is mostly for the diesel variants. "If any, the impact on sales of these two models will be very marginal," says Deepesh Rathore, managing director, IHS Automotive India, an information services company.
IHS Automotive has built forecasts around two scenarios. In the first case, it expects the plant to be shut for three weeks followed by three weeks when the plant would run at 50% capacity.
In this scenario, it expects the production loss to be 45,000 units of which competition may take away just 18,000-20,000 as many customers might be willing to wait. In the second scenario, it sees the plant being shut for five weeks followed by three weeks of 50% capacity run before returning to normalcy.
In this scenario, the production loss would be around 65,000 units and 26,000-30,000 would-be customers might opt for another brand. What plant shutdown will do is increase the already long waiting period. However, the Dzire and Swift buyers are likely to behave differently. Dzire is a popular model among cab operators who will find it difficult to handle a long waiting period, says a senior executive working from a rival carmaker.
Hence, lot more Dzire buyers will opt for non-Maruti models and diesel variants of Toyota Etios and M&M's Verito will be the likely gainer. In the Swift segment, customers — driven less by commercial considerations — wouldn't mind waiting for an extra month to buy their preferred model and hence the switch to another model will be lot less. Among the models that might benefit are the slightly pricier Hyundai i20 (not i10 because it does not have a diesel variant), Ford Figo and Toyota Liva.
Expectedly, Hyundai — Maruti's closest rival — has already swung into action. Last week, it shot off letters to its dealers to push sales of i20 and the sedan Verna. Tele-calls and SMSes are being used to push sales. And they are also offering higher incentives to agents selling the available trims in both i20 and Verna. Ford has begun offering a Rs 3,000 discount on Figo, Swift's nearest rival.
Toyota is offering free accessories worth Rs 10,000 on diesel variants of Liva and Etios But almost everybody expects this dent in sales to be both marginal and temporary.
"Nobody is able to compete on Maruti's cost," says VG Ramkrishnan, senior director, Frost & Sullivan, a consultant. In the past five years, six-seven new auto companies have entered Maruti's bastion. "But there is not a single company, besides Hyundai, that has been able to successfully challenge Maruti in that segment," he adds.
Contract Labour Loses Some Shine
More than 50% of the workers in shop floors today are cheaper contract labour. Unrest has forced Maruti to rethink. Will others follow?
It first began with India's stifling labour laws. India's manufacturing sector, going through the restructuring pain in the 1990s and figuring that the labour law reforms will remain elusive, opted for temping and contract labour. In the process, they also discovered that they could play the labour arbitrage game.
Contract workers today work out to be almost 40% cheaper than regular ones, estimates the Mumbai-based HR head of a leading auto company. Thanks to the flexibility and cost efficiency it offered, use of contract labour in the manufacturing sector today is very high. In the automobile sector alone, it is estimated that nearly 50% of plant workers would be contractual.
The Manesar imbroglio has now forced them to pause and think. Maruti, estimated to have 50-55% of workforce on contract, has already announced that it will overhaul its recruitment policy. "We will not have any contract worker in the core areas of manufacturing after March 2013. We have decided to change the mode of employment and all future recruitment would be done through the HR department to remove distortions," Maruti chairman RC Bhargava told the media last week. The carmaker's move is being watched by many in the auto industry in specific and the manufacturing world at large.
"It is still early to assess if this will have a broader impact. But we are keeping a close watch," says a senior Mumbai-based executive of an auto company. In a competitive scenario, cost and flexibility pressures far outweigh most other issues, he says.
And as Maruti unrest dies down, many say, it is very likely that the risks of using high percentage of contract workers may again be totally relegated to the background. "But even if they don't act, the Maruti unrest has made them more conscious of the risks involved," the executive said.
Bigger Lure for Gujarat Auto Hub
Stable political climate, pro-business government & good infrastructure is luring auto firms to Gujarat. NCR auto hub is losing out
NCR as an auto hub has been on the decline for some time now. Landlocked, NCR owed its status to historical and political considerations. The setting up of Maruti Suzuki was a political move. Today it has other manufacturers like Hero Honda, HMSI and Honda-Siel.
Barring HMSI's Rs 860-crore, 1.2-million unit plant in Rajasthan near NCR, no major investments have come to the region in the recent past.
There were two reasons why NCR got some of these investments. One, companies like Maruti, which already had a big presence and built their vendor eco-system here, obviously preferred to make fresh investments in the region. Two, many MNCs, especially the Japanese with large expat population, have traditionally preferred to locate in the friendlier and more hospitable NCR.
But over the past decade, things have changed. Almost all new investments — from Nissan to Renault to Ford — have totally ignored NCR while choosing their plant location. NCR's landlocked status, clogged infrastructure, lack of easy access to ports — especially when exports from India are becoming a critical part of the manufacturing strategy — have led to NCR's decline. Not to forget that most original equipment manufacturers try to diversify their geographical risk (especially when production is around the 1-million mark).
The unrest at Manesar may be the final nail in the coffin as far as the NCR auto hub is concerned, says Mohit Arora, executive director, JD Power (Asia Pacific), a research firm. Gujarat will be the biggest gainer. With access to good ports, the Narendra Modi government in the state offers a stable political regime, conducive and efficient business environment for India Inc.
Not to mention the significant upsides that the Delhi-Mumbai Industrial Corridor offers for the state. With the Modi government going on an overdrive to woo investments, expect Gujarat to get a lot of attention from global automakers. By 2015-16, it is estimated that nearly one of every three cars that roll out in the country would be from Gujarat.
Soul-searching on IR
Industrial relations was the non-sexy part of HR that was ignored as top talent flocked to the glamourous services sector. Campuses and India Inc are now waking up
If there is a message that the Manesar unrest sent out it is that the industrial relations (IR) department matters and is an extremely critical area for a company. One of the biggest failures in the Maruti dispute was the company's inability to manage industrial relations.
The past two decades of India's growth has been on the back of the rise of services sector. In the process, the grimy world of manufacturing and shop floors were ignored. Top engineers and MBAs preferred to work for services sector companies rather than a manufacturing firm. This did have a fall out in the HR space.
"Industrial relations is not sexy enough. B-schools don't focus on it. It is not a sought after course on the campuses," says K Ramkumar, executive director, ICICI Bank. So while on one hand top talent fled from the IR to HR, manufacturing firms — grappling with business challenges on multiple fronts — did not give it the priority or the attention it deserved. Senior corporate executives admit that the gap between the shop floor and the boardroom has never been wider. Hopefully, the Manesar unrest might lead to some rethink.
"The next 3-5 years will be a period where companies and HR professionals will need to relearn the people-management game," Ramkumar says. Some changes may have already begun. Last year, soon after Maruti's labour unrest, students at XLRI Jamshedpur organised a seminar on IR. "I was surprised that students took that initiative," says Pranabesh Ray, dean, XLRI.
Very few of their students opt for specialisation in IR. More surprising was the fact that companies, unions and the government actively participated in it and it was well attended by students from XLRI and other institutes.
"I think we need to broaden the meaning of IR and also include services sector," says Ray. IR should not be just about managing shop-floor workers but managing any collective of employees. "As economy slows down, it will create fewer jobs. Discontent will be high. Companies across the board will have to learn to manage people and their expectations afresh," he says.
A Small Push for Local Voice
MNCs have learnt the hard way to become sensitive to Indian consumers. Will they extend this sensitivity to the shopfloor as well?
It's a question that many are asking. Did Maruti, the company that understands India and Indian customers so well, somewhere lose touch with its own employees, and why? As India's economic traction increases, more and more MNCs are sending their senior executives to head India operations.
From Hyundai to Ford, Honda to Fiat and Audi to BMW — almost all car manufacturers are headed by expats. Some Korean firms like LG and Hyundai are seeing a bigger Koreanisation of their top management. It is also a fact that the expat voice often tends to dominate crucial decisions in the company. Expats are at times constrained in their understanding of Indian consumers. It applies to Indian workers too.
The unrest at Maruti will hopefully nudge them to pause and rethink. They need to bring in sensitivity to supposedly "non-bottomline" issues like IR and factory management. And that can only be good for the management and labour.
"This is the third lynching of an HR executive by angry workers. We are the sacrificial lamb. We are only the messengers — getting badgered from both the sides," says a Mumbai-based HR head of a large automobile company. Soul-searching among HR executives has begun. But the Maruti labour unrest will have other ramifications. ET Magazine analyses five areas where the unrest is likely to have an impact:
Small Gains for Rivals
Despite intense competition, Maruti has so far managed to protect its turf well. The dent in sales will be marginal and temporary
The labour unrest at Maruti's Manesar plant is tragic and automakers across the board and the industry body SIAM have condemned it and expressed solidarity with the company. But competitors will think like competitors.
Almost all car companies competing in the segment — from Hyundai to Ford to Skoda — are gearing up to make the most of the lockout at the Maruti plant.
Maruti's two most popular models — Swift and Dzire — are manufactured only at the Manesar plant. Despite intense competition, these models have a waiting period. While the backlog for Swift is 55,000 units, for Dzire it is 65,000 units — which means a waiting period of close to five months.
The demand rush is mostly for the diesel variants. "If any, the impact on sales of these two models will be very marginal," says Deepesh Rathore, managing director, IHS Automotive India, an information services company.
IHS Automotive has built forecasts around two scenarios. In the first case, it expects the plant to be shut for three weeks followed by three weeks when the plant would run at 50% capacity.
 |
In this scenario, the production loss would be around 65,000 units and 26,000-30,000 would-be customers might opt for another brand. What plant shutdown will do is increase the already long waiting period. However, the Dzire and Swift buyers are likely to behave differently. Dzire is a popular model among cab operators who will find it difficult to handle a long waiting period, says a senior executive working from a rival carmaker.
Hence, lot more Dzire buyers will opt for non-Maruti models and diesel variants of Toyota Etios and M&M's Verito will be the likely gainer. In the Swift segment, customers — driven less by commercial considerations — wouldn't mind waiting for an extra month to buy their preferred model and hence the switch to another model will be lot less. Among the models that might benefit are the slightly pricier Hyundai i20 (not i10 because it does not have a diesel variant), Ford Figo and Toyota Liva.
Expectedly, Hyundai — Maruti's closest rival — has already swung into action. Last week, it shot off letters to its dealers to push sales of i20 and the sedan Verna. Tele-calls and SMSes are being used to push sales. And they are also offering higher incentives to agents selling the available trims in both i20 and Verna. Ford has begun offering a Rs 3,000 discount on Figo, Swift's nearest rival.
Toyota is offering free accessories worth Rs 10,000 on diesel variants of Liva and Etios But almost everybody expects this dent in sales to be both marginal and temporary.
"Nobody is able to compete on Maruti's cost," says VG Ramkrishnan, senior director, Frost & Sullivan, a consultant. In the past five years, six-seven new auto companies have entered Maruti's bastion. "But there is not a single company, besides Hyundai, that has been able to successfully challenge Maruti in that segment," he adds.
Contract Labour Loses Some Shine
More than 50% of the workers in shop floors today are cheaper contract labour. Unrest has forced Maruti to rethink. Will others follow?
It first began with India's stifling labour laws. India's manufacturing sector, going through the restructuring pain in the 1990s and figuring that the labour law reforms will remain elusive, opted for temping and contract labour. In the process, they also discovered that they could play the labour arbitrage game.
Contract workers today work out to be almost 40% cheaper than regular ones, estimates the Mumbai-based HR head of a leading auto company. Thanks to the flexibility and cost efficiency it offered, use of contract labour in the manufacturing sector today is very high. In the automobile sector alone, it is estimated that nearly 50% of plant workers would be contractual.
The Manesar imbroglio has now forced them to pause and think. Maruti, estimated to have 50-55% of workforce on contract, has already announced that it will overhaul its recruitment policy. "We will not have any contract worker in the core areas of manufacturing after March 2013. We have decided to change the mode of employment and all future recruitment would be done through the HR department to remove distortions," Maruti chairman RC Bhargava told the media last week. The carmaker's move is being watched by many in the auto industry in specific and the manufacturing world at large.
"It is still early to assess if this will have a broader impact. But we are keeping a close watch," says a senior Mumbai-based executive of an auto company. In a competitive scenario, cost and flexibility pressures far outweigh most other issues, he says.
And as Maruti unrest dies down, many say, it is very likely that the risks of using high percentage of contract workers may again be totally relegated to the background. "But even if they don't act, the Maruti unrest has made them more conscious of the risks involved," the executive said.
Bigger Lure for Gujarat Auto Hub
Stable political climate, pro-business government & good infrastructure is luring auto firms to Gujarat. NCR auto hub is losing out
NCR as an auto hub has been on the decline for some time now. Landlocked, NCR owed its status to historical and political considerations. The setting up of Maruti Suzuki was a political move. Today it has other manufacturers like Hero Honda, HMSI and Honda-Siel.
Barring HMSI's Rs 860-crore, 1.2-million unit plant in Rajasthan near NCR, no major investments have come to the region in the recent past.
There were two reasons why NCR got some of these investments. One, companies like Maruti, which already had a big presence and built their vendor eco-system here, obviously preferred to make fresh investments in the region. Two, many MNCs, especially the Japanese with large expat population, have traditionally preferred to locate in the friendlier and more hospitable NCR.
But over the past decade, things have changed. Almost all new investments — from Nissan to Renault to Ford — have totally ignored NCR while choosing their plant location. NCR's landlocked status, clogged infrastructure, lack of easy access to ports — especially when exports from India are becoming a critical part of the manufacturing strategy — have led to NCR's decline. Not to forget that most original equipment manufacturers try to diversify their geographical risk (especially when production is around the 1-million mark).
The unrest at Manesar may be the final nail in the coffin as far as the NCR auto hub is concerned, says Mohit Arora, executive director, JD Power (Asia Pacific), a research firm. Gujarat will be the biggest gainer. With access to good ports, the Narendra Modi government in the state offers a stable political regime, conducive and efficient business environment for India Inc.
Not to mention the significant upsides that the Delhi-Mumbai Industrial Corridor offers for the state. With the Modi government going on an overdrive to woo investments, expect Gujarat to get a lot of attention from global automakers. By 2015-16, it is estimated that nearly one of every three cars that roll out in the country would be from Gujarat.
Soul-searching on IR
Industrial relations was the non-sexy part of HR that was ignored as top talent flocked to the glamourous services sector. Campuses and India Inc are now waking up
If there is a message that the Manesar unrest sent out it is that the industrial relations (IR) department matters and is an extremely critical area for a company. One of the biggest failures in the Maruti dispute was the company's inability to manage industrial relations.
 |
The past two decades of India's growth has been on the back of the rise of services sector. In the process, the grimy world of manufacturing and shop floors were ignored. Top engineers and MBAs preferred to work for services sector companies rather than a manufacturing firm. This did have a fall out in the HR space.
"Industrial relations is not sexy enough. B-schools don't focus on it. It is not a sought after course on the campuses," says K Ramkumar, executive director, ICICI Bank. So while on one hand top talent fled from the IR to HR, manufacturing firms — grappling with business challenges on multiple fronts — did not give it the priority or the attention it deserved. Senior corporate executives admit that the gap between the shop floor and the boardroom has never been wider. Hopefully, the Manesar unrest might lead to some rethink.
"The next 3-5 years will be a period where companies and HR professionals will need to relearn the people-management game," Ramkumar says. Some changes may have already begun. Last year, soon after Maruti's labour unrest, students at XLRI Jamshedpur organised a seminar on IR. "I was surprised that students took that initiative," says Pranabesh Ray, dean, XLRI.
Very few of their students opt for specialisation in IR. More surprising was the fact that companies, unions and the government actively participated in it and it was well attended by students from XLRI and other institutes.
"I think we need to broaden the meaning of IR and also include services sector," says Ray. IR should not be just about managing shop-floor workers but managing any collective of employees. "As economy slows down, it will create fewer jobs. Discontent will be high. Companies across the board will have to learn to manage people and their expectations afresh," he says.
 |
MNCs have learnt the hard way to become sensitive to Indian consumers. Will they extend this sensitivity to the shopfloor as well?
It's a question that many are asking. Did Maruti, the company that understands India and Indian customers so well, somewhere lose touch with its own employees, and why? As India's economic traction increases, more and more MNCs are sending their senior executives to head India operations.
From Hyundai to Ford, Honda to Fiat and Audi to BMW — almost all car manufacturers are headed by expats. Some Korean firms like LG and Hyundai are seeing a bigger Koreanisation of their top management. It is also a fact that the expat voice often tends to dominate crucial decisions in the company. Expats are at times constrained in their understanding of Indian consumers. It applies to Indian workers too.
The unrest at Maruti will hopefully nudge them to pause and rethink. They need to bring in sensitivity to supposedly "non-bottomline" issues like IR and factory management. And that can only be good for the management and labour.
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